Yesterday’s big story was the Federal Reserve didn’t raise interest rates. This keeps interest rates unraised since 2006. Everyone that has borrowed in US Dollars breathes a sigh of relief. I believe they should have raised. Retirees, insurance companies, pension funds, banks, and savers in the US would have appreciated the move. The stock markets around the world are holding the Fed hostage. It’s just a matter of time before they raise. Armstrong Economics points out interest rates are at 5000 year lows, no joke.
Socrates was on the money again. The model thought the US Markets would rise strongly last week, with a more moderate rise this week. I made some money off the move. Socrates is going live to the public at the end of September last time Armstrong Economics mentioned the news.
Marty came out with a blog post today on how the Fed is repeating the same mistake it made in 1927. The Fed yielded to European pressure to lower rates. The goal was to deflect capital flows back to Europe. The policy failed miserably and the opposite reaction occurred. That led to the boom in the stock market into 1929.
Fed Makes Same Mistake as it did in 1927
What’s my plan going forward? I am sticking with Socrates. Socrates has been on the money. Socrates is forecasting a two week drop in the markets, with an ultimate panic week in the middle of October. This panic week would be similar to what happened the week of August 25th. Remember that week? The Dow was down 1000 points before the market opened on Monday, only to recover. My plan is to buy puts and sell calls on insurance companies and financial institutions to take advantage of the negative sentiment. As an aside Socrates is still scheduled to go live at the end of September from Armstrong Economics. My goal is to realize a 14% annualized return, which will keep me on track for retirement.
Stay safe and sane with your investments. The best time to review your investment plan is before market carnage starts, not afterwards. Emotions run high during drawdowns. The world is connected and nonlinear. Make sure your plan is robust enough to handle what you think is unthinkable.
Vijay @ smilingdad
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